<PAGE>
FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Report of Foreign Issuer
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
For the month of September, 2000
---------
FANTOM TECHNOLOGIES INC.
--------------------------------------------------------------------------------
(Translation of registrant's name into English)
1110 Hansler Road
Welland, Ontario, Canada L3B 5S1
--------------------------------------------------------------------------------
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual
reports under cover of Form 20-F or Form 40-F.
Form 20-F Form 40-F X
--- ---
Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes No X
--- ---
If "Yes" is marked, indicate below the file number assigned to the
registrant in connection with Rule 12g3-2(b):
82-___________
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
FANTOM TECHNOLOGIES INC.
Date: September 25, 2000 by: /s/ Walter J. Palmer
-------------------------
Walter J. Palmer
Secretary
<PAGE>
Item List
1. 2000 Annual Report
2. Notice of Annual Meeting of Shareholders to be held October 26, 2000,
Management Information Circular and Proxy
<PAGE>
FANTOM TECHNOLOGIES INC.
NOTICE OF ANNUAL MEETING
OF SHAREHOLDERS
October 26, 2000
Take notice that an Annual Meeting (the "Meeting") of the Shareholders of
Fantom Technologies Inc. (the "Company") will be held in the Toronto Stock
Exchange Auditorium, TSE Conference Centre and Stock Market Place, The
Exchange Tower, 130 King Street West, Toronto, Ontario M5X 1J2, on Thursday,
the 26th day of October, 2000 at 11:00 a.m. (Toronto time), for the following
purposes:
1. to receive and consider the annual report to the shareholders, the
financial statements of the Company for the year ended June 30, 2000 and
the report of the auditors thereon;
2. to elect directors;
3. to appoint the auditors and to authorize the directors to fix the
auditors' remuneration; and
4. to transact such other business as may properly come before the Meeting
or any adjournment thereof.
Shareholders who are unable to attend the Meeting in person are requested
to date, sign and return the accompanying form of proxy in the envelope
provided for that purpose.
Dated at Toronto, Ontario this 15th day of September, 2000.
By Order of the Board of Directors
Walter J. Palmer
Secretary
<PAGE>
FANTOM TECHNOLOGIES INC.
MANAGEMENT INFORMATION CIRCULAR
SOLICITATION OF PROXIES
This Management Information Circular is furnished in connection with the
solicitation of proxies by the management of Fantom Technologies Inc. (the
"Company") for use at the Annual Meeting of Shareholders of the Company (the
"Meeting") to be held on Thursday, October 26, 2000 in the Toronto Stock
Exchange Auditorium, TSE Conference Centre and Stock Market Place, The
Exchange Tower, 130 King Street West, Toronto, Ontario M5X 1J2, at 11:00 a.m.
(Toronto time), or any adjournment thereof, for the purposes set forth in the
accompanying Notice of Meeting. It is expected that the solicitation will be
primarily by mail. Proxies may also be solicited personally or by telephone by
regular employees of the Company. The costs of solicitation by management will
be borne by the Company.
APPOINTMENT AND REVOCATION OF PROXIES
The persons named in the enclosed form of proxy are directors or officers
of the Company. Each shareholder has the right to appoint a person other than
the persons named in the enclosed form of proxy, who need not be a shareholder
of the Company, to represent the shareholder at the Meeting. This right may be
exercised by inserting that person's name in the blank space provided in the
form of proxy or by completing another proper form of proxy.
A shareholder who has given a form of proxy has the power to revoke it as
to any matter on which a vote has not already been cast pursuant to the
authority conferred by such form of proxy. In addition to revocation in any
other manner permitted by law, a proxy may be revoked by instrument in writing
executed by the shareholder or by his or her attorney authorized in writing
or, if the shareholder is a body corporate, under its corporate seal or by an
officer or attorney thereof duly authorized, and deposited either at the
registered office of the Company at any time up to and including the last
business day preceding the day of the Meeting, or any adjournment thereof, at
which the proxy is to be used, or with the chair of the Meeting on the day of
the Meeting, or any adjournment thereof. The address of the registered office
of the Company is 1110 Hansler Road, P.O. Box 1004, Welland, Ontario L3B 5S1.
VOTING OF PROXIES
Shares represented by properly executed forms of proxy in favour of the
persons named in the enclosed form of proxy will be voted or withheld from
voting in accordance with the instructions of the shareholder on any ballot
that may be called for and, where the person whose proxy is solicited
specifies a choice with respect to the matters identified in the form of
proxy, the shares will be voted for or against the matters set out in the form
of proxy in accordance with the specifications so made. Where shareholders
have not specified in the form of proxy the manner in which the named proxies
are required to vote the shares represented thereby, such shares will be voted
for the matter to be acted upon. The enclosed form of proxy confers
discretionary authority with respect to amendments or variations to matters
identified in the Notice of Meeting and with respect to other matters that may
properly come before the Meeting. As at the date hereof, the management of the
Company knows of no such amendments, variations or other matters to come
before the Meeting.
VOTING SECURITIES
There are 9,130,408 common shares ("Common Shares") of the Company
outstanding. Each Common Share entitles the holder thereof to one vote on all
matters.
Pursuant to the Business Corporations Act (Ontario), the Company will
prepare a list of holders of Common Shares as at the close of business on
September 15, 2000. Each person named in such list is entitled to vote the
shares shown opposite his or her name at the Meeting except to the extent that
he or she has transferred any of his or her shares after that date and the
transferee of those shares produces properly endorsed share certificates or
otherwise establishes that he or she owns the shares, and demands, not later
than ten days before the Meeting, that his or her name be included in the list
before the Meeting, in which case the transferee is entitled to vote his or
her shares at the Meeting or any adjournment thereof.
<PAGE>
PRINCIPAL HOLDERS OF VOTING SECURITIES
To the knowledge of the directors and senior officers of the Company, as at
September 15, 2000, the only shareholders of the Company beneficially owning
or exercising control or direction over more than 10% of the Common Shares are
as follows:
<TABLE>
<CAPTION>
Type of Number of Percent
Name of Shareholder Ownership Common Shares of Class
------------------- --------- ------------- --------
<S> <C> <C> <C>
Phillips, Hager & North Investment Management
Ltd.......................................... of Record 1,525,100 16.7%
Guardian Capital Inc.......................... of Record 1,032,400 11.3%
</TABLE>
ELECTION OF DIRECTORS
The number of directors of the Company is currently fixed at eight. Proxies
received from holders of Common Shares in favour of management nominees will,
unless required to be withheld from voting, be voted to elect as directors of
the Company the following proposed nominees (or substitute nominees in the
event of contingencies not known at present) who will, subject to the by-laws
of the Company and to applicable laws, serve until the next annual meeting of
shareholders or until their successors are elected or appointed.
<TABLE>
<CAPTION>
Year First Number of Common Shares
Elected as a Beneficially Owned,
Name Principal Occupation Director(/1/) Controlled or Directed(/2/)
---- -------------------- ------------- ---------------------------
<S> <C> <C> <C>
Arthur H. Crockett(/3/). Corporate Director 1984 63,958
Kenneth Kelman.......... Director of the Company 1984 201,011
James D. Meekison....... Chairman of Trimin Capital Corp. 2000 41,500
(public investment company)(/4/)
Rikki Vice President, First Canada 1989 274,049
Meggeson(/3/)(/5/)..... Financial Corporation Limited
(private investment company)
Allan D. Millman........ President and Chief Executive 1984 251,150
Officer
of the Company
Walter J. Palmer(/6/)... Partner, Fasken Martineau DuMoulin 1999 5,000
LLP (Barristers and Solicitors)
Alan Steinert, Jr....... Consultant 1990 10,000
Joseph H. Wright Managing Partner of Crosbie & 2000 6,000
III(/3/)............... Company Inc. (specialty investment
bank)(/7/)
</TABLE>
-------
Notes:
(1) Each nominee has served as a director of the Company and its predecessor
continuously since the year set out opposite his or her name.
(2) The information as to Common Shares owned or over which control or
direction is exercised, not being within the knowledge of the Company, has
been provided by the respective nominees. The number of Common Shares
shown does not include outstanding options to purchase Common Shares which
have been granted to directors who are not full-time employees of the
Company under the Company's Outside Director Share Option Plan and to
Allan D. Millman, a full-time employee of the Company, under the Company's
Key Employees' Stock Option Plan.
(3) Member of the Audit Committee.
(4) Prior to July 1998, Mr. Meekison was the Chairman of Trimin Enterprises
Inc., a public investment company, and occupied such position since 1991.
(5) Chair of the Board of Directors.
(6) Mr. Palmer is also Secretary of the Company.
(7) Prior to October 1997, Mr. Wright was the President and Chief Executive
Officer of Swiss Bank Corporation (Canada), a Schedule B bank under the
Bank Act (Canada), and occupied such position since 1995.
APPOINTMENT OF AUDITORS
Unless otherwise specified on the accompanying form of proxy, the shares
represented by proxies received in favour of management nominees will be voted
to appoint KPMG, the present auditors, as the auditors of the Company and to
authorize the directors to fix their remuneration. KPMG have been the auditors
of the Company and its predecessor since April 1985.
2
<PAGE>
EXECUTIVE COMPENSATION
Composition of the Compensation Committee
During the fiscal year ended June 30, 2000, the Compensation Committee of
the Board of Directors consisted of Messrs. Arthur H. Crockett, Maxwell
Goldhar (until his death in December 1999) and James D. Meekison (who was
appointed on February 23, 2000).
Report on Executive Compensation
The Compensation Committee is mandated to ensure that the Company's
compensation policies are adequate to attract and retain highly qualified and
experienced executives.
The Company's compensation policy for Named Executive Officers (as defined
below), including the chief executive officer, primarily emphasizes annual
cash compensation. The Compensation Committee obtains survey data on executive
compensation from independent professional compensation consultants which it
reviews with a view to assessing the Company's salary ranges and to
determining its policies on executive compensation. At present, the target
level for executive salaries is the 75 percent quartile level of companies of
comparable size and in comparable businesses (Canadian companies for Company
executives based in Canada and United States companies for the Company
executive based in the United States).
The Company has an Executive Gain Sharing Plan which relates a portion of
the total executive compensation to the Company's overall performance. Under
this plan, each of the Named Executive Officers was entitled during the 2000
fiscal year to receive a bonus based on the amount by which the Company's
actual pre-tax income exceeded a pre-established target level.
In addition, executives are periodically granted options to purchase Common
Shares as a longer term component of their compensation.
Presented by the Compensation Committee:
Arthur H. Crockett
James D. Meekison
3
<PAGE>
Share Performance Graph
The following graph compares the total cumulative shareholder return over
the last five years for $100 invested in Common Shares of the Company from June
30, 1995 (assuming the reinvestment of dividends) with that of the total
cumulative return of the TSE 300 Stock Index.
FIVE YEAR RETURN COMPARISON
FANTOM AND THE TSE 300 INDEX
<TABLE>
<CAPTION>
1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
TSE 300 INDEX..................................... $100 $114 $148 $172 $167 $246
FANTOM............................................ $100 $216 $351 $378 $480 $271
</TABLE>
4
<PAGE>
Summary Compensation Table
The following table is a summary of compensation for services in all
capacities to the Company and its subsidiaries for the fiscal years ended June
30, 2000, 1999 and 1998 earned by each individual who was, at June 30, 2000,
(i) the chief executive officer, and (ii) the other four most highly
compensated executive officers other than the chief executive officer
determined in accordance with the Regulation made under the Securities Act
(Ontario) (collectively with the chief executive officer, the "Named Executive
Officers").
<TABLE>
<CAPTION>
Long-Term Compensation
------------------------------
Awards
---------------------- -------
Annual Compensation Securities Restricted Payouts
---------------------------- Under Shares or -------
Other Annual Options Restricted LTIP All Other
Name and Principal Salary Bonus Compensation Granted Share Units Payouts Compensation
Position(/1/) Year ($) ($) ($) (#) ($) ($) ($)
------------------ ---- ------- ------- ------------ ---------- ----------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Allan D. Millman........ 2000 372,000 46,500 30,000 21,688
President and Chief 1999 372,000 186,000 10,000 22,075
Executive Officer 1998 285,000 106,875 -- 22,998
Nick E. Varanakis(/2/).. 2000 177,000 22,125 20,000 19,780
Vice President, Sales 1999 181,440 90,720 10,000 24,006
1998 145,257 54,471 -- 13,111
Alan C. Hussey.......... 2000 162,200 16,250 20,000 14,248
Senior Vice President
and 1999 130,000 65,000 10,000 15,893
General Manager 1998 120,000 45,000 -- 17,882
Paul F. Smith........... 2000 142,600 16,250 20,000 6,353
Vice President, Sales 1999 130,000 65,000 10,000 9,350
1998 130,000 48,750 -- 4,030
Stephen J. Doorey....... 2000 132,200 16,250 20,000 14,545
Vice President and Chief 1999 130,000 65,000 10,000 12,473
Financial Officer 1998 115,000 44,250 -- 7,532
</TABLE>
-------
Notes:
(1) Positions indicated are those as at June 30, 2000.
(2) The salary of this Named Executive Officer is expressed and paid in U.S.
dollars. For purposes of the table, his salary was converted to Canadian
dollars using the simple average of the closing exchange rate on the last
day of each month during the relevant fiscal year.
Option Grants in 2000 Fiscal Year
The following table sets out the options granted to each of the Named
Executive Officers during the fiscal year ended June 30, 2000.
<TABLE>
<CAPTION>
Market Value
% of Total of Securities
Securities Options Underlying
Under Options Granted to Exercise or Options on the
Granted Employees in Base Price Date of Grant
Name (#) Financial Year ($/Security) ($/Security) Expiration Date
---- ------------- -------------- ------------ -------------- ---------------
<S> <C> <C> <C> <C> <C>
Allan D. Millman........ 10,000 14.1 21.50 21.50 August 16, 2004
20,000 17.25 17.50 January 24, 2005
Nick E. Varanakis....... 10,000 9.4 21.50 21.50 August 16, 2004
10,000 17.25 17.50 January 24, 2005
Alan C. Hussey.......... 10,000 9.4 21.50 21.50 August 16, 2004
10,000 17.25 17.50 January 24, 2005
Paul F. Smith........... 10,000 9.4 21.50 21.50 August 16, 2004
10,000 17.25 17.50 January 24, 2005
Stephen J. Doorey....... 10,000 9.4 21.50 21.50 August 16, 2004
10,000 17.25 17.50 January 24, 2005
</TABLE>
5
<PAGE>
Aggregated Options Exercised in 2000 Fiscal Year and 2000 Fiscal Year-end
Option Values
The following table sets out the options exercised by each of the Named
Executive Officers during the fiscal year ended June 30, 2000 and held as at
June 30, 2000 by each of the Named Executive Officers.
<TABLE>
<CAPTION>
Value of Unexercised
Common Shares Unexercised Options in-the-Money Options
--------------------------- at June 30, 2000 at June 30, 2000
Acquired on Aggregate Value (#) ($)
Exercise Realized Exercisable/ Exercisable/
Name (#) ($) Unexercisable Unexercisable
---- ----------- --------------- ------------------- --------------------
<S> <C> <C> <C> <C>
Allan D. Millman........ Nil Nil 45,000/35,000 20,000/0
Nick E. Varanakis....... Nil Nil 25,000/25,000 20,000/0
Alan C. Hussey.......... Nil Nil 25,000/25,000 20,000/0
Paul F. Smith........... 4,800 95,640 20,200/25,000 0/0
Stephen J. Doorey....... Nil Nil 15,000/25,000 0/0
</TABLE>
Pension Plan Table
Historically, the Salaried Employees' Pension Plan of the Company (the
"Pension Plan") was solely a defined benefit plan. Effective January 1, 1997,
members of the Pension Plan were given the option to transfer the commuted
value of their accrued benefits to a newly-created defined contribution
portion of the Pension Plan and thereafter to participate in the defined
contribution portion of the Pension Plan.
The following table sets out the annual amount which would be payable from
the defined benefit portion of the Pension Plan based on retirement at age 65,
at various levels of remuneration and years of credited service to employees
who did not elect to transfer to the defined contribution portion of the
Pension Plan.
<TABLE>
<CAPTION>
Years of Service
----------------------------------------
Remuneration ($) 5 10 15 20 25 30
---------------- ----- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
100,000................................ 7,006 14,012 21,017 28,023 35,029 42,035
125,000................................ 8,611 17,222 25,833 34,444 43,056 51,667
150,000................................ 8,611 17,222 25,833 34,444 43,056 51,667
175,000................................ 8,611 17,222 25,833 34,444 43,056 51,667
200,000................................ 8,611 17,222 25,833 34,444 43,056 51,667
225,000................................ 8,611 17,222 25,833 34,444 43,056 51,667
250,000................................ 8,611 17,222 25,833 34,444 43,056 51,667
</TABLE>
-------
Notes:
(1) The remuneration used to calculate defined benefits (for the defined
benefit portion of the Pension Plan) is salary and includes sales
incentives, commissions, bonuses, overtime pay, vacation pay and holiday
pay.
(2) All of the Named Executive Officers participate in the defined
contribution portion of the Pension Plan.
(3) Pensions paid under the Pension Plan are payable for the member's lifetime
with the guarantee that the pension will be paid for at least five years.
Company pensions are augmented by government pension benefits after age
65.
Employment Contracts
The Company has entered into an agreement with each of its Named Executive
Officers pursuant to which the Company has agreed that in the event the
employment of such officer is terminated following a change of control of the
Company, the terminated officer will be entitled to receive a lump sum
retiring allowance varying from one and one-half to two and one-half times the
annual salary of the terminated officer and will also be entitled to
continuation of normal employee benefits for an equivalent period.
Compensation of Directors
The Company does not pay any compensation to the Named Executive Officer
who is a director for his services as a director. During the fiscal year ended
June 30, 2000, the Company paid each of its remaining directors who were not
employees of the Company a flat fee of Cdn. $10,000 per calendar quarter plus
out-of-pocket expenses incurred by him or her in attending meetings. No
additional amounts were payable for committee participation or special
assignments.
6
<PAGE>
During the fiscal year ended June 30, 2000, four non-employee directors
were granted options to purchase an aggregate of 40,000 Common Shares at a
price of $21.50 per Common Share under the Outside Director Share Option Plan
and two non-employee directors were granted options to purchase an aggregate
of 20,000 Common Shares at a price of $17.25 under the Outside Director Share
Option Plan. Mr. Palmer, a director of the Company, is a partner of Fasken
Martineau DuMoulin LLP, Toronto, Ontario, which has provided legal services to
the Company for a number of years.
Directors' and Officers' Liability Insurance
Under the existing policy of insurance, the Company is entitled to be
reimbursed for indemnity payments it is required or permitted to make to
directors and officers which are in excess of $10,000 deductible per
occurrence, to a maximum of $50,000,000 in each policy year. The directors and
officers of the Company are insured for losses arising from claims against
them for certain of their acts, errors or omissions for which the Company does
not indemnify them, to a maximum of $50,000,000 in each policy year. As at the
date hereof, all of the directors and officers of the Company and its
subsidiaries are included as insureds under the policy. All premiums for the
policy are paid by the Company. The annual premium paid for directors' and
officers' liability insurance was $98,000 for fiscal 2000. The premiums for
the insurance are not allocated between directors and officers as separate
groups.
Indebtedness of Directors and Officers
None of the directors or senior officers of the Company or their respective
associates or affiliates are or have been indebted to the Company since the
beginning of the last completed fiscal year of the Company.
CORPORATE GOVERNANCE
The Toronto Stock Exchange (the "TSE") has issued a series of guidelines
(the "TSE Guidelines") respecting corporate governance. The TSE has adopted as
a listing requirement the disclosure by each listed corporation of its
approach to corporate governance with reference to the TSE Guidelines. The
required disclosure is set out in tabular form in Appendix A to this
Management Information Circular.
GENERAL
The management of the Company knows of no matters to come before the
Meeting other than the matters referred to in the accompanying Notice of
Meeting.
The information contained herein is given as of September 15, 2000, except
as otherwise noted.
The contents and sending of this Management Information Circular have been
approved by the directors.
By Order of the Board
Walter J. Palmer
Secretary
7
<PAGE>
APPENDIX A
STATEMENT OF CORPORATE GOVERNANCE PRACTICES
<TABLE>
<CAPTION>
Does Fantom
Align with TSE
Corporate Governance Guideline Guidelines? Comments
------------------------------ -------------- --------
<S> <C> <C>
1. Board should explicitly assume The mandate of the Board is to oversee the
responsibility for stewardship conduct of the Company's business. The
of the Company and Board has approved guidelines on corporate
specifically for: governance issues which set out the manner
in which it will discharge its
responsibilities in this regard, in some
cases with the assistance of Committees of
the Board. The objective of the Board is to
maximize shareholder value in a manner
which is consistent with good corporate
citizenship, including fair treatment of
the Company's employees, customers and
suppliers. The Board expects management to
perform in a manner consistent with
achieving these objectives.
a. adoption of a strategic Yes The Board is responsible for the overall
planning process strategic direction of the Company, and
approves major new product development
programs and debt and equity financing.
Strategic planning and the review of
strategies developed by management are the
principal items of business at one Board
meeting each year and strategies and their
implementation are regularly discussed at
other meetings of the Board.
b. identification of principal Yes The Board's duties include the review of
risks, and ensuring the overall business risks and of the Company's
implementation of risk practices and policies for dealing with
management systems such risks. In addition, the Audit
Committee, has been mandated to assess the
principal risks which the Company faces
and, where appropriate, to propose to the
Board the implementation of risk management
systems.
c. succession planning Yes The Compensation Committee of the Board
including appointing, reviews the Company's overall compensation
training and monitoring philosophy, and corporate succession and
senior management development plans at the executive officer
level. This Committee has been mandated to
review the annual performance of the chief
executive officer and to make
recommendations to the Board with respect
to the chief executive officer's
remuneration. The Compensation Committee
also oversees the operation of the
Company's pension plans.
d. communications policy Yes The Company has a policy of keeping its
shareholders and other stakeholders
informed of material developments both
through compliance with statutory
disclosure obligations and through
provision of additional relevant
information. In addition, the Board has
instructed management to be available to
shareholders to respond to questions and
concerns and to report to the Board in such
regard. Shareholder concerns are dealt with
on an individual basis, usually by
providing requested information.
</TABLE>
A-1
<PAGE>
<TABLE>
<CAPTION>
Does Fantom
Align with TSE
Corporate Governance Guideline Guidelines? Comments
------------------------------ -------------- --------
<S> <C> <C>
e. integrity of internal Yes The Board, through the Audit Committee,
control and management oversees the integrity of the Company's
information systems internal control and management information
systems.
2. Majority of directors should Yes The majority of the Company's directors are
be "unrelated" (independent unrelated to the Company, in that they are
from management and free from independent of management and are free from
interfering interests) any interest, business or other
relationship (other than any arising from
shareholding) which could, or could
reasonably be perceived to, materially
interfere with their ability to act with a
view to the best interests of the Company.
3. Disclose Board's analysis as Yes The Board has determined that there are
to whether each director is only two directors who are related, being
unrelated Allan D. Millman, by virtue of his position
as President and
Chief Executive Officer of the Company, and
Walter J. Palmer, by virtue of his being a
partner in Fasken Martineau DuMoulin LLP,
the Company's principal external legal
counsel.
4. Appoint a Committee Yes The Chair of the Board submits to the
responsible for proposing and Corporate Governance Committee candidates
assessing directors for nomination to the Board. If a candidacy
is endorsed by the Corporate Governance
Committee, it is then submitted to the
Board.
5. Implement a process for No While there is no formal process for
assessing the effectiveness of assessing directors on an ongoing basis,
the Board, its Committees and the directors are free to discuss specific
individual directors situations from time to time among
themselves and/or with the Chair of the
Board and, if need be, steps are taken to
remedy the situation, which steps may
include a request for resignation.
6. Provide an orientation and Yes The Chair of the Board is responsible for
education program for new the provision of an orientation and
directors education program for each new director.
7. Examine size of the Board, Yes The Board has recently increased its size
with a view to its to ensure a diversity of views and
effectiveness experience. The Board believes that its
current size is appropriate in light of the
current size and operations of the Company.
8. Review adequacy and form of Yes The Compensation Committee is responsible
compensation of directors to for reviewing the adequacy and form of the
reflect risks and compensation of directors.
responsibilities
9. Committees should generally be Yes All of the Board Committees are comprised
composed of outside directors, exclusively of outside directors, the
a majority of whom are majority of whom are unrelated. The Chair
unrelated of the Board is responsible for
recommending to the Board nominees to its
Committees.
</TABLE>
A-2
<PAGE>
<TABLE>
<CAPTION>
Does Fantom
Align with TSE
Corporate Governance Guideline Guidelines? Comments
------------------------------ -------------- --------
<S> <C> <C>
10. Assume or assign to a Yes The Corporate Governance Committee is
Committee responsibility for responsible for developing the Company's
approach to corporate approach to governance issues, including
governance issues monitoring developments in corporate
governance theory and practice, reviewing
the mandates of the Board's Committees and
recommending changes, and assisting in
selecting a Chair of the Board.
11. Develop position descriptions No The Board has recently considered the
for the Board and the CEO appropriateness of the implementation of
involving definition of specific limits to management's
limits to management's responsibilities and authority. Defined
responsibilities, and approve limits have not yet been established but
corporate objectives the issue is continuing to be addressed.
The corporate objectives which the
President and Chief Executive Officer is
responsible for meeting are determined by
the strategic plans and budget as approved
each year by the Board.
12. Establish structures and Yes The Chair of the Board, who is not a member
procedures to enable the of management, is charged with ensuring
Board to function that the Board can function independently
independently of management of management.
13. Establish an Audit Committee Yes The Audit Committee of the Board consists
with a specifically defined of only non-management directors. The
mandate and consisting only mandate of the Audit Committee includes the
of non-management directors review of the Company's audited financial
statements and reporting on such statements
to the Board before the statements are
approved by the Board. To fulfill this
responsibility, the Committee meets with
the Company's auditors to discuss the
financial statements and any concerns
raised by the auditors with respect to
financial presentation or disclosure, and
with respect to the Company's internal
financial controls. The Audit Committee
also recommends to the Board the auditors
to be appointed as the Company's auditors
at the annual meeting.
14. Implement a system to enable Yes Any individual director wishing to engage
individual directors to an outside adviser at the expense of the
engage outside advisers at Company in relation to a matter involving
the Company's expense in the Company is permitted to do so provided
appropriate circumstances such engagement is approved by the
Corporate Governance Committee.
</TABLE>
A-3
<PAGE>
FANTOM TECHNOLOGIES INC.
PROXY
This proxy is solicited by management.
The undersigned shareholder of Fantom Technologies Inc. ("Fantom") hereby
appoints R. M. Meggeson of Willowdale, Ontario, or failing her A. D. Millman
of Toronto, Ontario, or failing him W. J. Palmer of Toronto, Ontario, or
instead of any of the foregoing as the nominee of the
undersigned to attend and act on behalf of the undersigned at the annual
meeting of shareholders to be held on October 26, 2000, or any adjournment
thereof, in the same manner, to the same extent and with the same power as if
the undersigned were present at the said meeting or any adjournment thereof;
provided, however, that without otherwise limiting the generality of the power
hereby conferred, the nominee is specifically directed to vote the shares
registered in the name of the undersigned as follows:
1. Vote [_] or Withhold from voting [_] in the election of directors; and
2. Vote [_] or Withhold from voting [_] in the appointment of the auditors
and in the authorization of the directors to fix the auditors'
remuneration.
This proxy is solicited on behalf of the management of Fantom in connection
with the annual meeting of shareholders of Fantom to be held on Thursday,
October 26, 2000, or at any adjournment thereof. Shareholders have the right
to appoint a person or persons to attend and act on their behalf at the
meeting other than the nominees designated above and may exercise such right
by inserting such other person's name in the blank space provided for that
purpose in the form of proxy or by completing another form of proxy and, in
either case, delivering the completed proxy to Fantom.
-- -- The shares represented by this proxy
will be voted in accordance with any
specification made on this form of proxy,
and will be withheld from voting if so
specified. In the absence of any such
specification, such shares will be voted
for the matter to be acted upon.
If any amendments or variations to
matters identified in the Notice of
Meeting or if any other matters not
identified in the Notice of Meeting
properly come before the meeting, this
proxy confers discretionary authority to
vote on such amendments or variations or
such other matters according to the best
judgment of the person voting the proxy at
the meeting.
DATED this day of ______________, 2000.
-----------------------------
Name of Shareholder
(Please Print)
-- -- -----------------------------
Signature of Shareholder
<PAGE>
Metamorphosis by
Design
[GRAPHIC]
ANNUAL REPORT
[LOGO OF FANTOM]
<PAGE>
The Best of
Science and
Technology
Committed to
Humanity
<PAGE>
It has been an exciting and challenging year at Fantom.
Our metamorphosis from a single-product line and North American focus to a
multi-product global competitor is well underway. In charting our path for
change, we have leveraged our strengths in manufacturing and marketing,
together with determination and commitment to research and development, to
position Fantom to capitalize on this transition.
[GRAPHIC]
Our move to a new business paradigm will be driven by the launch of a
series of next-generation products. Leading off will be the FANTOM(R)
CALYPSO(TM) Microbiological Water Processor. This innovative countertop
appliance, scheduled for introduction in the current fiscal year,
incorporates processes used by the world's most advanced municipal water-
treatment facilities to kill dangerous microorganisms. It also eliminates
or reduces many other contaminants and provides great-tasting water. The
CALYPSO(TM) product will participate in the multi-billion-dollar North
American and international home water-treatment market, one that has
excellent growth potential as concerns about water quality continue to
rise, here and around the world.
annual report 2000 1
<PAGE>
Fantom is also preparing to set a new standard of excellence in the
floor-care industry with the introduction, in mid-calendar 2001, of a
"wireless" vacuum that does the seemingly impossible.
This remarkably quiet machine is designed to provide full power for up to
an hour before its energy system needs to be regenerated. Consumers can
anticipate performance equal to that of top-of-the-line corded vacuums
without being tethered to the wall. Several proprietary innovations,
including our new power-control technology, make this possible.
[GRAPHIC]
Our power-control technology transfers energy in the form of a
specially-tuned electronic signal, called a "pulse-train", that is neither
alternating nor direct current. It is designed to reduce the power
requirements of electromechanical systems, extend the output of batteries
and reduce recharging time. This should enable many cordless products to
finally deliver on the promise of performance equivalent to traditional
plug-ins. Over time, we expect this advanced technology to impact many
consumer appliances and anticipate it will lead to licensing opportunities.
Our microbiological water processor, "wireless" vacuum and power-control
technology are just the beginning of the exciting developments made
possible through our strategic alliance with Omachron Technologies, Inc.
Already our strategically focused applied research programs are yielding
new possibilities in a wide range of scientific fields. Together we are
developing a universal thermal energy cell that we believe employs several
novel concepts that could enable it to operate efficiently as an electrical
generator or as a heat pump. This invention, for which thirteen utility
patent applications have been filed, flows from extensive research and
development work.
Potential applications of the energy cell span a broad spectrum of
household products including small appliances such as vacuum cleaners, lawn
mowers and leaf blowers. Additional uses may include portable power
generators; portable light emitters; gas-fired furnaces; and air
conditioning, refrigeration, freezing and cryo-cooling systems. As a next
step, we plan to embody the technology in a prototype product and have its
performance characteristics assessed by third parties. This will assist us
in evaluating the commercial viability of the energy cell.
2
<PAGE>
In fiscal 2000, our dual-cyclonic vacuum business came under intense
pressure, particularly in the latter part of the year. All of our major
competitors have now introduced bagless vacuums in response to widespread
consumer demand, generated in part by the excellence of Fantom's products
and award-winning marketing programs. This has resulted in increased
"clutter" at retail, a higher level of perceived interchangeability of
products among consumers and a cycle of price reductions.
Fantom's revenue for fiscal 2000 (twelve months ending June 30, 2000)
declined 14.2% to $207.6 million. Net income was $2.1 million compared to
$14.2 million for fiscal 1999. Earnings per share were $0.23 (based on
9,092,228 shares outstanding) compared with $1.58 (based on 9,002,060
shares outstanding) for the previous year.
Financial information in this report is expressed in Canadian dollars,
unless otherwise noted.
[GRAPHIC]
By aggressively reducing costs and repositioning retail price points, we
have taken steps to strengthen our core business. In addition, to create
added consumer value, we recently introduced a new "Limited Edition"
version of the FURY(R) vacuum and plan to enhance this and other models in
the line in the first half of calendar 2001.
When the current metamorphosis is complete, we expect Fantom to emerge as a
global competitor equipped with a portfolio of breakthrough products based
on patented, leading-edge technologies. In addition to capitalizing on our
extensive and diverse distribution channels in North America, we also plan
to develop profitable avenues to international markets through licensing
and joint ventures. These factors, together with our proven marketing
acumen and manufacturing excellence, should enable us not only to execute
our aggressive business plan for the coming year, but also to fulfill our
mission "to bring the best of science and technology to humanity". Our
first two new products - the CALYPSO(TM) Microbiological Water Processor
and the "wireless" vacuum - are anticipated to begin to have a materially
positive impact on financial results in fiscal 2002. We encourage you to
take a few minutes now to learn more about the exciting things we believe
the future has in store for your company!
annual report 2000 3
<PAGE>
The FANTOM(R) CALYPSO(TM)
Microbiological
Water Processor
It Does What No Filter Alone Can Do!
The Power of Ozone
Ozone is a form of oxygen. The oxygen in the air we breathe consists of two
oxygen atoms, while the ozone molecule consists of three. This makes ozone very
reactive and a powerful oxidizing agent, which in turn makes it an excellent
disinfectant. Ozone is one of the most powerful, safe oxidants available for
water treatment. It can kill harmful microorganisms such as E. coli,
Cryptosporidium, Giardia, Salmonella, Hepatitis A, Poliovirus, Cholera and
Rotavirus.
Climate change, acid rain, increased human and livestock wastes, improper
treatment and disposal of wastewater, and aging water distribution systems all
contribute to the real and growing threat to many of our drinking-water sources.
The CALYPSO(TM) product uses a two-stage process of ozonation and filtration to
kill harmful microorganisms and reduce or eliminate numerous other contaminants.
The result is fresh, clean, great-tasting water.
People want cleaner, safer water
Almost 90% of Americans rank drinking-water safety as one of their highest
priorities, equal to crime prevention and ahead of protecting the environment.1
The Water Quality Association's 1999 research shows that 72% of Americans are
concerned about their water, and that 62% are using water-treatment devices,
drinking bottled water or both.2 In fact, the bottled-water market in the United
States is now five-billion dollars (U.S.) in size.3
The FANTOM(R) CALYPSO(TM) product is like a miniature, state-of-the-art
municipal water-treatment facility or bottled-water plant that rests on the
kitchen counter.
It allows consumers to take control over the quality of their drinking water at
the point of use. The machine's ability to kill dangerous microorganisms sets it
apart from other household water-treatment devices. In the first stage of the
treatment process, ozone is bubbled through the water to kill bacteria,
including E. coli, viruses and protozoa such as Cryptosporidium and Giardia.
1. CMF & Z Marketing Communications, Spring 2000 Food Safety Study
2. The 1999 National Consumer Water Quality Survey - Water Quality
Association, January 1999
3. Beverage World Magazine, April 15, 2000 - Oh, What a month! by Greg W.
Prince
4
<PAGE>
In the second stage, the water is processed through a custom-blended
carbon-block filter. This step reduces the concentrations of heavy metals such
as lead and mercury, contaminants such as oils, fats, greases and chlorine, and
a wide range of volatile organic compounds, such as benzene, carbon
tetrachloride and toluene. Importantly, the minerals that provide water with its
good taste, such as calcium, magnesium and potassium, are left in. Fluoride is
also allowed to pass through the filter, providing reassurance for parents
concerned about the dental health of their children.
[GRAPHIC]
annual report 2000 5
<PAGE>
Ozone - Past and Present
Discovered by the Dutch scientist Van Marum in 1783, ozone was first used to
purify drinking water in Nice, France in 1906. Ozone is now used extensively in
Europe. In North America, ozone was first used in Whiting, Indiana in the 1940s.
More recently, the cities of Los Angeles, California and Dallas, Texas built two
of the world's largest ozonation plants to purify their cities' drinking water.
Many other of the most modern municipal water-treatment facilities incorporate
this process. In total, ozonation is used in over 3000 municipal treatment
facilities worldwide.
1. PRE-FILTER SCREEN TRAPS SEDIMENT AND PARTICULATES
2. OZONE KILLS HARMFUL MICROORGANISMS
BACTERIA, including E. coli and Samonella. VIRUSES, such as Hepatitis A and
Poliovirus. PROTOZOA, including Cryptosporidium and Giardia.
[GRAPHIC]
6
<PAGE>
Convenience and Confidence
The FANTOM(R) CALYPSO(TM) Microbiological Water Processor is easy to use. In
minutes, microorganisms are killed and the water is filtered and dispensed into
the clean-water carafe, ready to drink. A computer-controlled monitoring system
oversees the treatment process. The status light flashes to give adequate
warning when the filter needs to be replaced, which for a typical family of four
should be about once a year. Notably, the appliance is designed to shut down
when the filter is spent.
[GRAPHIC]
3. CARBON-BLOCK FILTER ELIMINATES CONTAMINANTS
Custom-formulated carbon-block filter reduces chemicals and impurities.
Leaves in Minerals desirable for taste, like calcium, potassium, and
magnesium.
Filter lasts about a year.
4. PROCESSOR DISPENSES DELICIOUS WATER
Fills the 2-liter carafe automatically. Or, manually dispenses a glassful at
a time.
5. COMPUTER CONTROLS THE PROCESS
A sophisticated computer-controlled monitoring system oversees the treatment
process.
[GRAPHIC]
annual report 2000 7
<PAGE>
A New Paradigm in Vacuum Cleaner Technology
Power, Performance, Freedom, Quiet
Wireless
[GRAPHIC]
A full-power, full-performance, "wireless" vacuum that's quiet -- sound
impossible? Not any more! Fantom's new entry, planned for mid-calendar 2001,
offers this and much more.
Consumers told us that a cord-free vacuum that really performed would be the
product of their dreams - so we took up the challenge.
Fantom's new "wireless" vacuum is a full-performance machine designed to operate
at full power for up to an hour before its energy system needs to be
regenerated.
It is engineered to deliver peak cleaning performance, without the need to be
tethered to a wall. The heart of the vacuum is Fantom's power-control
technology, which transfers energy in the form of a specially-tuned electronic
signal, called a "pulse-train". This proprietary technology reduces the power
requirements of the vacuum without affecting its useful output.
8
<PAGE>
Fantom's "wireless" vacuum will be equipped with a convenient on-board charging
unit. Just plug it into any available wall outlet using the integral cord. An
easy-to-read energy gauge will let users know how much vacuuming time is
available. Wasted energy is often revealed by excessive noise and waste heat.
The new Fantom "wireless" vacuum is designed to minimize both.
Library-Quiet
[GRAPHIC]
Freedom
The advanced technology used in our machine is expected to enable it to operate
on about 100 watts of power compared with over 1000 watts for the Company's
existing corded vacuums. With quiet operation, consumers will be able to use
this exciting new vacuum without disrupting other members of the household.
annual report 2000 9
<PAGE>
New to Our Upright Family:
The FANTOM(R) FURY(R) Limited Edition
The FANTOM(R) FURY(R) Limited Edition, with its trendy accent colour, conveys a
fresh and fashionable appearance. Its new GRIP `N' GO(TM) handle and telescopic
wand take above-floor cleaning to a new level of convenience. A low-profile base
and focused-beam headlight add further touches of sophistication. The
FURY Limited Edition upright made its retail debut in August 2000. The new
packaging is eye-catching, and its smaller, "space-conscious" box-size makes it
easier than ever to display.
[GRAPHIC]
1. New GRIP `N' GO(TM) handle and telescopic wand for above-floor cleaning.
2. Lightweight and adjustable, telescopic cleaning wand provides up to ten
feet of reach - perfect for cleaning stairs or bare floors.
3. Focused-beam headlight provides more light for dark nooks and crannies.
4. Sleek, low-profile design makes it easier to attack dust bunnies --
even those hiding under the bed!
10
<PAGE>
As with all of our FANTOM(R) dual-cyclonic vacuums, the FURY(R) Limited Edition
model provides essential features that over three million FANTOM vacuum owners
love: continuous full cleaning power, versatility, HEPA filtration and, of
course, no bags!
[GRAPHIC] [GRAPHIC]
"I love it.
I just can't believe how much dirt goes into the canister."
Lori P., Huntington, Pennsylvania
What FANTOM(R) FURY(R) owners tell us about their vacuums1
93% love their vacuum
"I cannot believe how much it picks up. I thought my home was fairly clean.
Wrong! It's a great machine."
Jeanette S., Fort Myers, Florida
92% would recommend it to family and friends
"It was recommended by my sister who has three pets and it is wonderful.
I`m actually embarrassed by the amount of hair and dirt it pulls up. I will
pass on the good word."
Robert S., Tonawanda, New York
93% say it is worth the price they paid
"This is our second one. Now we have one for each floor. We love it!"
Mrs. Sterling H., Grand Island, New York
90% say it cleans carpets better than their previous vacuum
"It's the best vacuum I have ever had. I'm surprised how it picks up
everything."
Grace D., North Bay, Ontario
94% of allergy sufferers claim it filters better than their old vacuum
"The HEPA filter does not let dust and dirt escape back out into the air.
No bags. Phenomenal power!"
Elizabeth K., Port St. Lucie, Florida
1 FANTOM(R) FURY(R) vacuum owners
Use and Attitude Study - June, 2000
annual report 2000 11
<PAGE>
The THUNDER(R), LIGHTNING(R), FURY(R) and CYCLONE XT(R) Vacuums
...set the Standard for a New Generation of Floor-Care Products
. Patented dual-cyclonic cleaning action
. 100% cleaning power, 100% of the time(TM)
. See-through collection bins that can be easily emptied
. No bags
. Easily-activated above-floor cleaning wands
. HEPA filters - capture 99.97% of dust, dirt and allergen particles down to
0.3 microns in size
. On-board tools
[GRAPHIC]
STAIRHUGGER(R)
FANTOM(R) LIGHTNING(R)
Unique STAIRHUGGER(R) design enables the vacuum to sit on steps without tipping
or slipping.
[GRAPHIC]
Rugged and Robust
[GRAPHIC]
FANTOM(R) THUNDER(R)
Rugged and robust, ready for the toughest task!
12
<PAGE>
The FANTOM(R) FURY(R)
Slim and lightweight - maneuvers easily into hard-to-reach places.
[GRAPHIC]
"The FANTOM(R) CYCLONE XT(R) Show"
won the Electronic Retailing Association award for the Best Infomercial
Production over $150,000 (U.S.) in October 1999.
FANTOM(R) CYCLONE XT(R)
Two-motor system for top-of-the-line performance.
annual report 2000 13
<PAGE>
Metamorphosis by Design
Managed Change for a
Better Future
We hope you have enjoyed learning about the exciting initiatives underway at
your company. The challenges that we faced in the past year came from many
directions, but we believe that the first steps in our planned transformation to
a multi-technology global competitor will soon be complete.
[GRAPHIC]
In designing the transition to our future, we have not abandoned our roots. Our
reputation for innovation and quality in floor care will be nurtured by the
recent introduction of the FURY(R) Limited Edition model, further enhancements
to our existing products, and the planned launch of our revolutionary new
"wireless" vacuum. In spite of the competitive pressures we have faced in recent
months, we are determined to protect and expand the floor-care business we have
developed.
Our transformation builds on the foundation of Fantom's core business. Through
our alliance with Omachron Technologies, Inc. we are applying advanced science
to everyday living as we work to develop a wide range of consumer products that
are both "best-in-the-world" and "first-in-the-world". The ozonation technology
used in our microbiological water processor and the power-control technology,
which we expect to propel the "wireless" vacuum to unprecedented levels of
performance, are merely the starting point.
As of September 5, 2000, eighty-five utility patent applications had been filed
for technologies that Fantom has acquired through its association with Omachron.
Of these, nineteen have already been allowed by the United States patent office.
14
<PAGE>
Because of the breadth of technologies being developed and the wide range of
markets in which they could be applied, we plan to capitalize on our research
and development investment through licensing and strategic joint ventures, in
addition to marketing finished products through Fantom's existing channels of
distribution.
[GRAPHIC]
Join us as our metamorphosis unfolds.
/s/ Rikki Meggeson /s/ Allan Millman
Rikki Meggeson Allan Millman
Chair of the Board President and Chief Executive Officer
annual report 2000 15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
This discussion and analysis should be read in conjunction with the financial
statements and related notes included in the 2000 annual report to shareholders.
Financial information is expressed in Canadian dollars, unless otherwise noted.
RESULTS OF OPERATIONS
Sales
The Company's revenue in fiscal 2000 declined 14.2% from the previous year to
$207.6 million. Unit shipments of vacuums decreased 16.4%. The average
revenue per vacuum increased 1.0% due to a shift in mix in favour of the
higher priced FANTOM(R) CYCLONE XT(R) model. Price reductions were
implemented across all models during the course of the fiscal year and
averaged 4.7%.
Shipments to the United States in fiscal 2000 accounted for 87.6% of total
revenue, compared with 90.6% for fiscal 1999. Essentially all of the
Company's sales in both years consisted of dual-cyclonic vacuums and related
accessories.
The distribution of revenue between the United States and Canada, and between
retailers (including distributors) and direct-response programs, was as
follows:
Revenue
(Millions of Dollars) United States Canada Total
2000 1999 2000 1999 2000 1999
----------------------------------------------------
Retail 172.7 207.5 25.3 22.3 198.0 229.8
Direct-Respons 9.2 11.7 0.5 0.5 9.7 12.2
--------------------------------------------------------------------------------
Total 181.9 219.2 25.8 22.8 207.6 242.0
Shipments of FANTOM(R) vacuums to retailers in the United States in fiscal 2000
decreased 16.8% from the previous year due mainly to increased competitive
activity within the bagless segment of the vacuum cleaner market. Aggregate
sales of products to the Company's five largest customers were $100.9
million, comprising 48.6% of total revenue, compared to $122.7 million and
50.7% respectively for the previous year.
Sales through the Company's direct-response programs in fiscal 2000 declined
$2.5 million from the previous year to $9.7 million. Total media spending
was $17.8 million compared to $17.1 million in fiscal 1999; all of the
spending in both years was for television time. Of the total media spending
in fiscal 2000, 78.1% was for short-form spots (30, 60 and 120 seconds in
length), and the remaining 21.9% for 30-minute infomercials. This compares
with 73.5% and 26.5% respectively for fiscal 1999.
16
<PAGE>
Cost of Goods Sold
Cost of goods sold, as a percentage of sales, was 65.3% in fiscal 2000 compared
with 64.2% in fiscal 1999. Positive impacts on margin included the drop in
value of the Canadian dollar relative to the United States dollar, net of
hedging effects (approximately 3.1 percentage points); a shift in mix toward
higher margin models (approximately 1.5 percentage points); and the year-
over-year impact of the Company's cost reduction programs (approximately 0.5
percentage points). Offsetting these were the impact of price reductions
(approximately 4.7 percentage points) and negative production variances
resulting from operating the Company's two factories at lower production
volumes (approximately 1.5 percentage points).
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased 5.8% in fiscal 2000 to
$66.8 million. As a percentage of sales, they increased to 32.2% from 26.1%
in fiscal 1999. Media spending increased 4.5% over fiscal 1999 to $17.8
million. Co-op advertising spending (which is advertising controlled by the
retailer which includes the supplier's product and for which the supplier
agrees to pay a portion of the costs) increased to $12.0 million from $10.3
million. Warranty costs increased to $3.5 million from $1.5 million in
fiscal 1999 due to the increasing number of FANTOM(R) vacuums in consumers'
homes and a higher incidence level of repairs for the Company's LIGHTNING(R)
canister. The higher level of repairs for the LIGHTNING(R) canister was
largely due to manufacturing issues which occurred prior to fiscal 1999.
Expenses associated with refurbishing product rose to $5.7 million from $4.3
million, due mainly to increased volumes.
Research and Development Spending
Research and development spending in fiscal 2000 totaled $7.0 million (fiscal
1999 - $5.7 million), net of research and development tax credits of $0.5
million (fiscal 1999 - $0.6 million). Of the total spending, $2.7 million
was capitalized (fiscal 1999 - $3.1 million), net of research and
development tax credits of $0.1 million (fiscal 1999 - nil), and was mainly
for various technologies that were acquired, industrial designs for a number
of new products under development, and patent applications for new
technologies and products. Additions to deferred costs totaled $2.1 million
(fiscal 1999 -$1.2 million), net of research and development tax credits of
$0.3 million (fiscal 1999 - nil), and consisted mainly of expenditures
related to the Company's new microbiological water processor and "wireless"
floor-care product. Amounts expensed were $2.2 million (fiscal 1999 - $1.4
million), net of $0.1 million of research and development tax credits
(fiscal 1999 -$0.6 million), and were mainly for research and development
staff and materials. Net Income
Net income in fiscal 2000 was $2.1 million compared with $14.2 million in fiscal
1999. The decrease was due mainly to the decline in revenue and the impact
of absorbing fixed costs over lower production volumes.
annual report 2000 17
<PAGE>
FINANCIAL CONDITION
During fiscal 2000, $2.5 million of cash was used for operations compared with
$16.9 million generated in fiscal 1999. The decrease in cash flow from
operations in fiscal 2000 was due mainly to the decrease in net income. The
investment in non-cash operating working capital increased by $8.1 million
due mainly to an increase in income taxes receivable of $7.3 million and a
decrease in income taxes payable of $1.1 million. During fiscal 1999, cash
in the amount of $6.0 million was generated from closing currency-hedging
contracts that had maturity dates beyond the end of the fiscal year. This
was done to take advantage of opportunistic shifts in the value of the
Canadian dollar relative to the U.S. dollar. Since these gains were derived
as a function of the Company's comprehensive hedging program, they were
deferred until the period in which the original hedge would have matured. As
a result, $3.8 million was recognized in fiscal 2000 pre-tax income, and a
further $2.2 million was deferred until fiscal 2001. Items not requiring
cash in fiscal 2000 included depreciation of $3.3 million and a deferred tax
increase of $3.6 million.
Cash in the amount of $1.0 million was provided in fiscal 2000 from the exercise
of stock options. Capital expenditures during the year were $9.1 million and
were mainly for tooling and equipment for the new FANTOM(R) CALYPSO(TM)
Microbiological Water Processor ($3.6 million); for the acquisition of new
technologies, industrial designs for new products and patent applications
for new technologies and products ($2.7 million); and for replacements,
repairs and modifications to tools for existing products and expenditures
related to manufacturing and infrastructure ($2.8 million).
The Company's bank indebtness as at June 30, 2000 was $6.3 million compared with
a positive cash balance of $9.4 million at June 30, 1999. Key ratios
compared to the previous year were as follows:
As at June 30,
------------------------------
2000 1999
------------------------------
Current Assets to Current Liabilities 1.75 2.00
Total Liabilities to Tangible Net Worth 0.72 0.67
Effective September 1998, the Company modified its credit arrangement with a
Canadian chartered bank to enhance the Company's ability to exploit
potential opportunities with respect to new product development and growth.
The amended arrangement allows the Company to borrow up to $35.0 million for
operating purposes, $4.0 million for capital expenditures, and $20.0 million
to assist with research and development expenditures. The research and
development facility is renewed annually at the Company's request and the
Bank's option. The facility was renewed during fiscal 2000 and extended to
January 2001. Interest on the general operating line is at the prime rate of
the Canadian chartered bank, interest on the capital line is prime plus
1/2%, and interest on the research and development line is prime plus 1%.
The $4.0 million capital line, $20.0 million of the general operating line,
and the $20.0 million research and development line are subject to a 1/8%
per annum standby fee. The availability on the general operating line is
subject to a formula based upon receivable and inventory levels. All loans
are secured by a general assignment of book debts, a general security
agreement and a mortgage on the Company's assets. As at June 30, 2000 the
unused amount available under the facility was $52.6 million versus $58.9
million as at June 30, 1999.
18
<PAGE>
OUTLOOK
The Company believes that it is positioned to expand its business in North
America and abroad by introducing the CALYPSO(TM) Microbiological Water
Processor, by launching a new full-power, long-life "wireless" vacuum, and
by enhancing its line of dual-cyclonic vacuums. The two new products are
expected to begin to have a materially positive impact on financial results
in fiscal 2002. Longer term, the Company believes it can further increase
revenue by introducing additional new products arising from its research and
development efforts with Omachron Technologies, Inc.
The Company has various agreements with the licensor of its dual-cyclonic
technology which provide it with the exclusive right (except for a special
purpose license to a direct-marketing company) to sell upright vacuum-
cleaning devices utilizing dual-cyclonic technology in the United States and
Canada, and the exclusive right to sell canister and backpack products
utilizing the same technology in the United States and Canada.
The electric floor-care industry is highly competitive and includes the
following major competitors: Bissell Inc.; Eureka Co.; Hoover Company;
Matsushita Electric Works, Ltd.; and Royal Appliance Mfg. Co. Of these major
competitors, Eureka Co., Hoover Company and Royal Appliance Mfg. Co. all
have forms of cyclonic vacuums that compete directly with the Company's line
of dual-cyclonic vacuums. These companies, as well as others, are expected
to introduce further new products that will compete with those of the
Company. The introduction of competitive cyclonic products had a significant
negative impact on sales of the Company's dual-cyclonic products during
fiscal 2000. The Company is uncertain as to the extent of the negative
impact these and other new products will have on its sales and net income in
future periods.
The Company has been pursuing a program to acquire and develop a number of
technologies for various household appliances and other consumer and
commercial products. In August 1998 it entered into a series of agreements
with Omachron Technologies, Inc. to acquire and develop several
technologies. The Company intends to spend significant amounts on research
and development over the next several years, with expenditures expected to
be not less than $5 million per year. In addition, depending on the speed
with which new products are developed, it could spend as much as $20 million
in any given year for tooling, manufacturing equipment, and pre-launch
marketing activities and materials. As of September 5, 2000, eighty-five
utility patent applications had been filed for technologies the Company is
either acquiring or exclusively licensing through its association with
Omachron Technologies, Inc. Of these, nineteen had already been allowed by
the United States patent office.
The Company believes that the technologies it has, and is continuing to acquire
and develop, are significant and could lead to substantial business growth.
The Company is targeting to launch two new products by mid-calendar 2001:
the CALYPSO(TM) Microbiological Water Processor and the full-power
"wireless" vacuum.
The Company's CALYPSO(TM) Microbiological Water Processor is designed to kill
microorganisms such as E. coli, Giardia and Cryptosporidium; to reduce heavy
metals such as mercury and lead as well as oils, fats, grease, pesticides,
herbicides, chlorine and other trace impurities; and to eliminate a wide
range of volatile organic compounds such as benzene, atrazine,
trihalomethanes and 2,4-D. The product leaves in fluoride as well as
minerals such as calcium, magnesium and potassium. It incorporates a
computer-controlled monitoring system to check various aspects of its
operation and to provide information to users regarding the status of the
system.
annual report 2000 19
<PAGE>
The Microbiological Water Processor utilizes ozone to kill microorganisms as
well as a custom-formulated carbon-block filter to remove many other
contaminants. The Company's technological developments enable relatively
strong concentrations of ozone to be produced in small, low-cost embodiments
with small energy inputs.
The Company plans to sell the water processor to many of the retailers that
purchase its existing floor-care products and to build consumer awareness
and demand at retail using direct-response television advertising. The
Company expects that this product will be the first of a line of water-
treatment products, and that it may lead to international licensing
opportunities.
Given the uncertainties inherent in the development of new technology and the
time delays which often arise in the process of developing new products
based on innovative technology, as well as the uncertainties associated with
entering a new market segment, it is not possible to forecast sales of the
microbiological water processor, or its effect on net income, with any
degree of accuracy.
The full-power "wireless" floor-care product the Company plans to introduce is
targeted to enable the Company to compete in a retail price segment higher
than that of its dual-cyclonic vacuums. Up-front spending for design and
development, tooling and assembly equipment, and pre-launch marketing
materials is expected to amount to approximately $7 million. Due to the
uncertainties associated with a new product launch and with competing in a
higher price segment, it is not possible to forecast sales of the new
product, or its effect on net income, with any degree of accuracy.
The Company has developed new power-control technology for use with its
"wireless" vacuum. The power-control technology transfers energy in the form
of a specially-tuned electronic signal, called a "pulse-train", that is
neither alternating nor direct current. It is designed to reduce the power
requirements of electromechanical systems as well as extend the output and
reduce the recharging time of batteries. The Company believes that, over
time, this might enable many cordless products to perform more equivalently
to traditional plug-ins. The Company has acquired exclusive rights to the
power-control technology for a range of consumer products and plans to
incorporate the technology into its own product lines as well as offering
licenses to allow the technology to be used by other companies.
The Company is also developing a universal thermal energy cell that it believes
employs several novel concepts that could enable it to operate efficiently
as an electrical generator or as a heat pump. Potential applications span a
broad spectrum of household products including small appliances such as
vacuum cleaners, lawn mowers and leaf blowers. Additional uses may include
portable power generators; portable light emitters; gas-fired furnaces; and
air conditioning, refrigeration, freezing and cryo-cooling systems.
Based upon the uncertainty associated with the development and application of
new technology, the Company is unable to determine the extent to which
future commercialization of these technologies will impact the Company's
results.
20
<PAGE>
The Company is highly dependent on a small number of scientists, and in
particular one chief scientist, to direct research activities for the
development of new technology and product embodiments based on such
technology. The Company has a commitment for the services of the chief
scientist that extends, at the Company's option, until 2005. The loss of
availability of the chief scientist could have a material adverse effect on
the Company's outlook and future results of operations.
During fiscal 2000 the Company entered into transactions with a barter and media
company. The transactions principally consisted of the sale of refurbished
vacuum cleaners for a combination of cash and barter credits. The inventory
value of the goods sold was $8.3 million. As the goods were not physically
shipped from the Company's premises prior to the fiscal 2000 year-end, nor
any significant amounts of cash and barter credits realized, no material
accounting entries were made in fiscal 2000 regarding the transactions. The
Company is uncertain as to how long it will take to realize the full value
of the goods sold by way of the cash and barter credits.
Given the Company's extensive sales activities in the United States and
manufacturing operations in Canada, the Company's results are sensitive to
changes in the exchange rate between the Canadian and U.S. dollar. To help
offset the effect of adverse currency fluctuation, the Company maintains a
hedging program consisting mainly of the purchase of forward contracts to
sell U.S. dollars. As of June 30, 2000 the Company held future contracts to
sell U.S. $75.0 million expiring at various dates during fiscal 2001 at an
average rate of Cdn. $1.47; and U.S. $59.0 million expiring at various dates
during fiscal 2002 at an average rate of Cdn. $1.47. A protracted rise in
the relative value of the Canadian dollar would have a negative effect on
net income for the Company. Based on the Company's fiscal 2000 results, a
rise in value of the Canadian dollar of 1 cent, without the protection of
hedging, would adversely affect net income by approximately $0.4 million.
Effective for the Company's fiscal period beginning July 1, 2000, the Canadian
Institute of Chartered Accountants (CICA) changed the accounting rules
applying to both pension benefits and post-employment benefits other than
pensions. The latter change is similar to the changes made in 1993 in the
United States under SFAS 106. The new rules move the accounting for non-
pension benefits to an accrual basis from the cash accounting basis
presently used by most companies, and also require that a prescribed year-
end market rate be used for valuing the future liabilities of both non-
pension and pension benefits.
Also effective July 1, 2000, the CICA changed the accounting rules applying to
corporate income tax. Under the new standard, tax assets and tax liabilities
must be measured by using tax rates and laws that are expected to apply to
taxable income in the periods when the assets or liabilities are expected to
be realized or settled.
Management has not completed the determination of the impact of these accounting
changes on the financial position of the Company at July 31, 2000. These
accounting changes do not affect cash flow of the Company.
annual report 2000 21
<PAGE>
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
The accompanying financial statements of Fantom Technologies Inc. have been
prepared by the management of the Company who are responsible for their
integrity and objectivity. To fulfill this responsibility, the Company
maintains appropriate systems of internal control, policies and procedures
to ensure that its reporting practices and accounting and administration
procedures are of high quality. The financial information presented
throughout this Annual Report is consistent with the information contained
in the financial statements.
The Company's Audit Committee is appointed by the Board of Directors annually.
This Committee meets annually with management, as well as the independent
auditors, to satisfy itself that management and the independent auditors are
each properly discharging their responsibilities, and to review the
financial statements and the independent auditors' report. The Audit
Committee reports to the Board of Directors prior to the Board approving the
financial statements for issuance to the shareholders.
The financial statements have been examined by KPMG, the Company's independent
auditors, on behalf of the shareholders. Their report outlines the nature of
their examination and expresses their opinion on the financial statements of
the Company.
/s/ Allan D. Millman
Allan D. Millman, President and Chief Executive
Officer August 18, 2000
AUDITORS' REPORT TO THE SHAREHOLDERS
We have audited the consolidated balance sheets of Fantom Technologies Inc. as
at June 30, 2000 and 1999 and the consolidated statements of income and
retained earnings and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing
standards. Those standards require that we plan and perform an audit to
obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at June 30, 2000
and 1999 and the results of its operations and its cash flows for the years
then ended in accordance with Canadian generally accepted accounting
principles.
KPMG LLP, Chartered Accountants
Hamilton, Canada
August 18, 2000
22
<PAGE>
CONSOLIDATED STATEMENTS
OF INCOME AND RETAINED EARNINGS
FANTOM TECHNOLOGIES INC.
<TABLE>
<CAPTION>
Years ended June 30, 2000 and 1999
---------------------------------------------
2000 1999
---------------------------------------------
<S> <C> <C>
Sales $ 207,646,115 $ 242,045,457
Cost of goods sold 135,507,033 155,492,659
-----------------------------------------------------------------------------------------------------------------------------------
72,139,082 86,552,798
Expenses:
Selling, general and administrative 66,793,648 63,116,152
Research and development 2,212,574 1,359,072
Finance charges (152,140) (75,826)
-----------------------------------------------------------------------------------------------------------------------------------
68,854,082 64,399,398
-----------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 3,285,000 22,153,400
Income taxes (note 8) 1,230,000 7,971,000
-----------------------------------------------------------------------------------------------------------------------------------
Net income 2,055,000 14,182,400
Retained earnings at beginning of year 31,116,910 18,015,632
Dividends (note 6) (1,818,342) (1,081,122)
-----------------------------------------------------------------------------------------------------------------------------------
Retained earnings at end of year $ 31,353,568 $ 31,116,910
===================================================================================================================================
Net income per share (note 10)
Basic $ 0.23 $ 1.58
Fully diluted $ - $ 1.51
===================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
annual report 2000 23
<PAGE>
CONSOLIDATED BALANCE SHEETS
FANTOM TECHNOLOGIES INC.
<TABLE>
<CAPTION>
At June 30, 2000 and 1999
---------------------------------------------
2000 1999
---------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ - $ 9,439,206
Trade accounts receivable 26,476,312 32,226,182
Other receivables 1,750,779 3,089,162
Income taxes receivable 7,267,496 -
Inventories (note 2) 23,909,087 19,835,717
Prepaid expenses 3,152,299 2,179,522
Deferred income taxes 838,000 954,000
-----------------------------------------------------------------------------------------------------------------------------------
63,393,973 67,723,789
Advances receivable (note 3) 951,150 -
Deferred development costs, net of amortization 4,140,494 2,062,177
Property, plant and equipment, net (note 4) 35,552,377 29,010,139
-----------------------------------------------------------------------------------------------------------------------------------
$ 104,037,994 $ 98,796,105
===================================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank indebtedness $ 6,332,500 $ -
Trade accounts payable 21,764,909 21,175,261
Other payables and accruals 5,944,041 7,520,078
Income taxes payable - 1,092,818
Currency hedging exchange gains 2,245,544 2,510,831
Current portion of capital lease obligations - 21,856
-----------------------------------------------------------------------------------------------------------------------------------
36,286,994 32,320,844
Currency hedging exchange gains - 3,482,790
Deferred income taxes 7,408,605 3,926,274
Shareholders' equity:
Share capital (note 6) 28,988,827 27,949,287
Retained earnings 31,353,568 31,116,910
-----------------------------------------------------------------------------------------------------------------------------------
60,342,395 59,066,197
-----------------------------------------------------------------------------------------------------------------------------------
$ 104,037,994 $ 98,796,105
===================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
On behalf of the Board:
Director Director
/s/ Rikki Meggeson /s/ Allan Millman
24
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
FANTOM TECHNOLOGIES INC.
<TABLE>
<CAPTION>
Years ended June 30, 2000 and 1999
---------------------------------------------
2000 1999
---------------------------------------------
CASH PROVIDED BY (USED FOR):
<S> <C> <C>
Operations:
Net income $ 2,055,000 $ 14,182,400
Items not requiring cash:
Depreciation 3,338,583 2,491,505
Deferred taxes 3,598,331 463,041
Amortization of deferred development costs 349,286 59,152
Change in non-cash operating working capital(note 11) (8,120,007) (5,578,874)
(Decrease) increase in currency hedging exchange gains (3,748,077) 5,311,090
-----------------------------------------------------------------------------------------------------------------------------------
(2,526,884) 16,928,314
Financing:
Increase in bank indebtedness 6,332,500 -
Payments on capital leases (21,856) (217,617)
Issuance of common shares and warrant 1,039,540 951,697
Dividends paid (1,818,342) (1,081,122)
-----------------------------------------------------------------------------------------------------------------------------------
5,531,842 (347,042)
Investments:
Additions to property, plant and equipment (9,065,411) (10,484,772)
Additions to deferred development costs (2,427,603) (1,267,092)
Increase in advances receivable (951,150) -
-----------------------------------------------------------------------------------------------------------------------------------
(12,444,164) (11,751,864)
-----------------------------------------------------------------------------------------------------------------------------------
(Decrease) increase in cash (9,439,206) 4,829,408
Cash and cash equivalents, beginning of year 9,439,206 4,609,798
-----------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ - $ 9,439,206
===================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
annual report 2000 25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2000 and 1999
--------------------------------------
The Company is incorporated under the Business Corporations Act (Ontario). The
principal business activities are the design, manufacture and sale of vacuum
cleaning devices.
1. SIGNIFICANT ACCOUNTING POLICIES:
These financial statements have been prepared on the basis of accounting
principles generally accepted in Canada. The most significant of the
policies followed by the Company are as follows:
(a) Basis of consolidation:
The consolidated financial statements include the accounts of the Company's
100% owned subsidiaries: Fantom Technologies Direct, Inc., Fantom
Technologies USA Holdings, Inc., Fantom Technologies USA, Inc. and Fantom
Technologies Intellectual Property, Inc.
(b) Inventories:
Inventories are stated at the lower of cost (first-in, first-out method)
and net realizable value.
(c) Property, plant and equipment:
Property, plant and equipment are stated at cost. Depreciation is computed
by the straight-line method over the estimated useful asset lives at the
following rates:
--------------------------------------------------------
Asset Rate
--------------------------------------------------------
Building 2.5%
Machinery and equipment 10.0%
Tools and dies 10.0% to 25.0%
Furniture and fixtures 10.0%
Computer equipment 20.0%
Patents 10.0%
License rights 20.0%
--------------------------------------------------------
Leasehold improvements are amortized over the term of the lease.
(d) Amortization of equipment under capital lease:
Amortization of equipment under capital lease is included in depreciation
expense. Such amortization is computed by the straight-line method using
rates of 10.0% to 20.0% per year.
(e) Research and development:
Expenditures for research are expensed as incurred. Expenditures for
development of new products to be sold are capitalized when management
determines that the product is technically and commercially feasible,
otherwise they are expensed as incurred. Deferred development expenses are
stated at cost and are amortized over a period of 2 to 5 years.
26
<PAGE>
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(f) Pension costs:
The assets of the defined benefit pension plans are recorded at market
values. The pension expense for the year includes adjustments for plan
amendments and experience gains and losses which are being amortized on a
straight-line basis over the expected average remaining service life of
each plan's participants.
(g) Segmented information:
The Company currently manufactures and markets its products in one industry
segment, that being vacuum cleaning devices. Sales made to customers
located in the United States amounted to $181,893,000 (1999: $219,213,000).
Property, plant and equipment, net of accumulated depreciation, located in
the United States amounted to $1,408,000 (1999: $1,554,000).
Sales to two customers for the year ended June 30, 2000 amounted to
approximately 28% (1999: 32%) of total Company sales. At June 30, 2000
receivables outstanding from these sales were $6,463,000 (June 30, 1999:
$7,898,000).
(h) Foreign currency translation:
The translation of foreign currency denominated balance sheet accounts is
performed using current exchange rates in effect at the balance sheet date
and for sales and expense accounts using average exchange rates during the
period. Foreign exchange losses for the year ended June 30, 2000 of
$810,000 (1999 gains: $1,693,000) resulting from translation are included
in the results of operations for the year.
(i) Revenue recognition:
Sales and related costs are recorded by the Company upon shipment of
products.
(j) Warranties:
The Company records a warranty accrual for estimated claims. The warranty
on the FANTOM(R) products is for two years. It is the Company's practice to
classify the entire warranty accrual as a current liability.
(k) Use of estimates:
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets, liabilities, revenue and expenses and
the disclosure of contingent assets and liabilities to prepare these
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
(l) Derivative financial instruments:
The Company uses derivative financial instruments to reduce the risks
related to exchange rate fluctuations on certain transactions. Accordingly,
the Company defers any unrealized gains and losses on these instruments
until such time that the underlying transactions are realized.
2. INVENTORIES:
Inventories are summarized as follows:
2000 1999
---------------------------------------------
Raw materials $ 5,106,591 $ 5,941,907
Finished goods 18,802,496 13,893,810
---------------------------------------------------------------------------
$ 23,909,087 $ 19,835,717
===========================================================================
annual report 2000 27
<PAGE>
3. ADVANCES RECEIVABLE:
The Company has entered into arrangements with Omachron Technologies, Inc.
(Omachron) covering the acquisition and development of a number of
technologies for various household appliances and other consumer and
commercial products. The Company has advanced amounts to a company related
to Omachron in conjunction with these arrangements. The advances are
non-interest bearing and due on demand; however, the Company does not
expect to demand payment within the next year. The Company has the right to
elect to recover the advances by reducing certain amounts which may be
payable under the arrangements with Omachron. The advances are secured by a
charge against property of a guarantor.
4. PROPERTY, PLANT AND EQUIPMENT:
<TABLE>
<CAPTION>
2000 1999
----------------------------------------------
Accumulated Net book Net book
Cost depreciation value value
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Land $ 81,204 $ - $ 81,204 $ 81,204
Building 1,879,470 280,503 1,598,967 1,298,855
Leasehold improvements 535,596 126,014 409,582 450,314
Machinery and equipment 6,678,367 1,839,364 4,839,003 4,700,576
Tools and dies 20,523,676 6,576,035 13,947,641 15,336,368
Furniture and fixtures 1,695,480 518,550 1,176,930 846,181
Computer equipment 3,297,076 908,327 2,388,749 2,224,063
Equipment under capital lease 776,815 574,565 202,250 345,890
Patents 2,408,564 - 2,408,564 1,572,000
License rights 2,276,250 - 2,276,250 1,280,000
Construction in progress 6,223,237 - 6,223,237 874,688
-------------------------------------------------------------------------------------------------------------------------------
$ 46,375,735 $ 10,823,358 $ 35,552,377 $ 29,010,139
===============================================================================================================================
</TABLE>
5. BANK LOAN AGREEMENTS:
The Company has a credit facility with a Canadian chartered bank. The
facility allows the Company to borrow up to a maximum of $35,000,000 for
general operating requirements, $4,000,000 for capital expenditures and
$20,000,000 to assist with research and development expenditures. The
general operating component is subject to an availability formula based on
trade accounts receivable and inventory. Interest on the general operating
component is calculated at the prime rate of the Canadian chartered bank
(7.5% at June 30, 2000), on the capital component at the prime rate plus
1/2% and on the research and development component at the prime rate plus
1%. Access to $20,000,000 of the general operating component, the
$4,000,000 capital component and the $20,000,000 research and development
component are subject to a 1/8% per annum standby fee on the daily unused
portion. Any borrowings under this agreement are secured by a general
assignment of book debts, a general security agreement and a mortgage on
the Company's assets. At June 30, 2000, the unused amount available under
the facility was $52,604,348 (fiscal 1999: $58,900,000).
6. SHARE CAPITAL:
(a) Capital stock: The authorized share capital of the Company consists of an
unlimited number of common shares, an unlimited number of class A,
preferred shares, issuable in series and an unlimited number of class B,
preferred shares, issuable in series.
The issued share capital of the Company is as follows:
2000 1999
------------------------------------
Common shares (note 6(b)) $ 28,988,627 $ 27,949,087
Warrant 200 200
---------------------------------------------------------------------------
$ 28,988,827 $ 27,949,287
===========================================================================
===========================================================================
In August 1998, the Company issued to Omachron 50,000 common shares, and a
warrant to purchase an additional 20,000 common shares, for an aggregate
subscription price of $808,700. The warrant will become exercisable on
August 10, 2000 and will be exercisable for three years thereafter at a
price of $16.17 per common share.
28
<PAGE>
6. SHARE CAPITAL (CONTINUED):
(b) Changes in common shares:
Shares Amount
---------------------------------
Outstanding at June 30, 1998 8,950,608 $ 26,997,590
Exercise of stock options 20,000 142,997
Shares issued from treasury for cash 50,000 808,500
---------------------------------------------------------------------------
Outstanding at June 30, 1999 9,020,608 27,949,087
Exercise of stock options 109,800 1,039,540
---------------------------------------------------------------------------
Outstanding at June 30, 2000 9,130,408 $ 28,988,627
===========================================================================
(c) Stock option plans:
The Company has established a Key Employees' Stock Option Plan (the "ESOP")
and an Outside Director Share Option Plan (the "DSOP"). Options to purchase
common shares of the Company under the Plans may be granted by the Board of
Directors to certain employees and directors of the Company. In addition,
the Board of Directors may grant options to independent consultants. At
June 30, 2000, 199,500 of the 1,125,000 common shares reserved for issuance
remain available for future grants.
The exercise price for the common shares covered by the foregoing option
arrangements is determined by the Board of Directors, but must not be less
than the fair market value of the common shares at the time of the grant of
the option. Options granted mature five years after the date of grant and
vest no later than two years from the date of grant.
Changes in the outstanding stock options relating to the plans:
Number of Weighted Average
Shares Exercise Price
-------------------------------------
Outstanding at June 30, 1998 387,500 $ 9.75
Granted 130,000 $15.00
Cancelled (2,500) $12.30
Exercised (20,000) $ 7.15
---------------------------------------------------------------------------
Outstanding at June 30, 1999 495,000 $11.21
Granted 294,000 $19.42
Cancelled (11,000) $21.11
Exercised (109,800) $11.43
---------------------------------------------------------------------------
Outstanding at June 30, 2000 668,200 $14.94
===========================================================================
Stock options granted during the year ended June 30, 2000 include 10,000
options to an independent consultant.
At June 30, 2000, 325,200 options were exercisable at an average
exercisable price of $11.09. The weighted average remaining contractual
life of the options is 3.0 years.
Effective July 1, 2000, the ESOP and the DSOP were amended to allow
eligible participants to elect between exercising (i) options to purchase
Common Shares or (ii) in lieu thereof, tandem stock appreciation rights
entitling the participant to receive a cash payment equal to the value of
such options. Any payment in respect of the tandem stock appreciation
rights will be recorded as compensation expense at the time of payment.
(d) Shareholder rights plan:
On August 12, 1999, the Board of Directors adopted a Shareholder Protection
Rights Plan (the "Plan"). The Plan was confirmed by the shareholders at the
1999 annual and special meeting of the shareholders held on October 21,
1999. The Plan will terminate at the annual meeting of shareholders in the
calendar year 2002. The purpose of the Plan is to protect the Company's
shareholders from unfair, abusive or coercive take-over strategies,
including the acquisition of control of the Company through a take-over bid
that does not treat all shareholders equally or fairly.
Under the Plan, each shareholder will be issued one right for each common
share. The rights become exercisable at the close of business on the tenth
trading day after the earliest of (i) the first date of public announcement
of facts indicating that a person (an "Acquiring Person") has acquired
beneficial ownership of 20% or more of the Company's outstanding voting
shares, subject to certain exceptions; (ii) the date of the commencement of
or first public announcement of the intent of any person (other than the
Company or any subsidiary of the Company)
annual report 2000 29
<PAGE>
6. SHARE CAPITAL (CONTINUED):
to commence a take-over bid (other than a Permitted Bid or a competing
Permitted Bid); (iii) the date upon which a Permitted Bid or a competing
Permitted Bid ceases to be such or such later time as may be determined by
the Board of Directors. Should a person become an Acquiring Person (a
"Flip-in Event"), each right entitles the holder to purchase from the
Company one common share at a price equal to 50% of the market price per
common share determined at that time, subject to anti-dilution adjustments.
A Permitted Bid is a take-over bid made to all holders of the Company's
voting shares and that is open for acceptance for not less than 60 days.
Other than as described above, the rights are not exercisable and cannot be
transferred apart from the common shares. At any time prior to a Flip-in
Event, the Board of Directors may redeem the rights in whole at a
redemption price of $0.001 per right (subject to adjustment for any anti-
dilution) and subject to shareholder approval.
(e) Dividends:
Dividends declared during fiscal 2000 on common shares were $0.20 per share
(fiscal 1999: $0.12) or $1,818,342 (fiscal 1999: $1,081,122).
7. PENSION PLANS:
The Company has established two pension plans which cover substantially all
of its employees. One plan is a defined benefit plan and the other has both
a defined benefit and a defined contribution component. As at June 30, 2000
the accrued benefit obligation of the defined benefit pension plans was
approximately $5,109,000 (June 30, 1999: $4,769,000) and the market value
of the related pension fund assets was $5,293,000 (June 30, 1999:
$4,379,000).
8. COMPONENTS OF CONSOLIDATED INCOME TAXES:
<TABLE>
<CAPTION>
2000 1999
-------------------------------------
<S> <C> <C>
Provision based on statutory combined federal
and provincial income tax rates (2000: 44.5%, 1999: 44.6%) $ 1,462,000 $ 9,880,000
Manufacturing and processing profits deduction (297,000) (1,994,000)
Other 65,000 85,000
------------------------------------------------------------------------------------------------
$ 1,230,000 $ 7,971,000
================================================================================================
</TABLE>
9. COMMITMENTS:
(a) Under various technology transfer agreements, the Company has an obligation
to pay royalties based upon sales of products using dual-cyclonic
technology. In some instances, the Company must pay a minimum annual
royalty in order to preserve the exclusive nature of its rights. Minimum
royalty payments for fiscal 2001 amount to approximately $1,180,800. The
agreements extend until the basic patents expire with bi-annual adjustments
in the royalty rate based on the change in the consumer price index. The
first of the basic patents does not expire until calendar 2003.
(b) Under the technology agreements with Omachron, the Company has an
obligation to pay fees as each product using a particular technology is
accepted and fees based upon sales of the products. The Company may elect
to cancel its rights to a product at any time and thereby remove any future
obligation. At June 30, 2000, payments remaining on products accepted
amount to $350,000 U.S. per year for each fiscal year from 2001 to 2004.
(c) At June 30, 2000 the Company had committed to spend $1,405,000 for
equipment and tooling.
10. NET INCOME PER SHARE:
Basic net income per share has been calculated using the weighted monthly
average number of common shares outstanding during the respective fiscal
years. These were 9,092,228 shares for fiscal 2000 and 9,002,060 shares for
fiscal 1999.
The fiscal 2000 net income for the calculation of fully diluted net income
per share has been increased by $267,000 (fiscal 1999: $169,000) being the
after-tax effect of the investment at 5% of the proceeds of the exercise of
the stock options and warrant mentioned in note 6, and assuming that the
exercise occurred at the later of the beginning of the year and the issue
date. The number of shares outstanding for purposes of calculating fully
diluted net income per share was 9,716,824 for fiscal 2000 and 9,485,608
for fiscal 1999. For fiscal 2000, the calculation of fully diluted earnings
per share results in no dilution of income.
30
<PAGE>
11. CONSOLIDATED STATEMENTS OF CASH FLOWS:
(a) Changes in non-cash operating working capital are as follows:
2000 1999
-------------------------------------
Trade accounts receivable $ 5,749,870 $ 3,295,740
Other receivables 1,338,383 (1,839,273)
Income taxes receivable (7,267,496) -
Inventories (4,073,370) (1,470,095)
Prepaid expenses (972,777) (70,695)
Trade accounts payable 589,648 (4,342,103)
Other payables and accruals (1,576,037) 462,877
Income taxes payable (1,092,818) (1,094,315)
--------------------------------------------------------------------------
$ (7,304,597) $ (5,057,864)
==========================================================================
Relating to operating activities $ (8,120,007) $ (5,578,874)
Relating to investing activities 815,410 521,010
--------------------------------------------------------------------------
$ (7,304,597) $ (5,057,864)
==========================================================================
(b) Supplemental cash flow information:
2000 1999
-------------------------------------
Cash paid during the year for:
Income taxes, net of refunds $ 5,376,224 $ 7,632,635
Interest 277,823 8,085
Dividends 1,818,342 1,081,122
Cash received from interest 189,655 67,089
Non-cash financing and investing
activities:
Additions to property, plant and equipment
through working capital (815,410) (521,010)
Change in non-cash working capital relating
to investments 815,410 521,010
==========================================================================
12. FINANCIAL INSTRUMENTS:
(a) Foreign currency rate risk:
The Company realizes a significant portion of its sales in a foreign
currency and enters into various types of foreign exchange contracts in
managing its foreign exchange risk. The Company does not hold or issue
financial instruments for trading purposes. At June 30, 2000 the Company
held forward foreign exchange contracts with an aggregate notional amount
of $134,000,000 U.S. to sell U.S. dollars at an average rate of 1.4692
Canadian per U.S. dollar expiring at various dates to April 2002. At June
30, 2000 these contracts had a positive fair value of $79,000 based on
quotations from the Company's bank.
During fiscal 1999, the Company settled certain foreign exchange contracts
prior to their maturity dates at a gain. As at June 30, 1999, $5,993,621 of
these gains were deferred until the sales transactions originally hedged
are recognized. As at June 30, 2000, $2,245,544 of these gains remain
deferred.
(b) Credit risk:
The Company does not have a significant exposure to any individual customer
other than the customers previously noted in note 1(g). The Company reviews
a new retail customer's credit history before extending credit and conducts
regular reviews of its existing retail customers' credit performance. The
Company currently obtains credit insurance coverage from the Export
Development Corporation on most domestic and export retail sales. Credit
extended on sales made directly to individuals is based on credit card
authorization. An allowance for doubtful accounts is established based upon
factors surrounding the credit risk of specific customers, historical
trends and other information. The allowance for doubtful accounts at June
30, 2000 was $395,700 (fiscal 1999: $660,000).
13. RELATED PARTY TRANSACTIONS:
During fiscal 1999, the Company paid $50,000 to a director of the Company
for consulting services provided in addition to his responsibilities as a
director.
14. COMPARATIVE FIGURES:
Certain comparative figures have been reclassified to conform with the
financial statement presentation adopted in the current year.
annual report 2000 31
<PAGE>
DIRECTORS AND OFFICERS
FANTOM TECHNOLOGIES INC.
DIRECTORS
Arthur H. Crockett Toronto, Ontario, Corporate Director
Kenneth Kelman Toronto, Ontario, Corporate Director
James D. Meekison Toronto, Ontario, Chairman,Trimin Capital Corp.,
Rikki Meggeson Toronto, Ontario, Chair of the Board of the Company
Allan D. Millman Toronto, Ontario, President of the Company
Walter J. Palmer Toronto, Ontario, Partner, Fasken Martineau
DuMoulin LLP
Alan Steinert Jr. Cambridge, Massachusetts, Consultant
Joseph H. Wright Toronto, Ontario, Managing Partner, Crosbie &
Company Inc.
OFFICERS
Stephen J. Doorey Mississauga, Ontario, Vice President, Chief
Financial Officer
Alan C. Hussey Welland, Ontario, Senior Vice President & General
Manager
Rikki Meggeson Toronto, Ontario, Chair of the Board of the Company
Allan D. Millman Toronto, Ontario, President and Chief Executive
Officer
Walter J. Palmer Toronto, Ontario, Secretary
Joseph A. Shillington Welland, Ontario, Vice President, Information
Technology
Paul F. Smith Oakville, Ontario, Vice President, Sales
Norman V. Soler Courtice, Ontario, Vice President, Engineering
Nick E. Varanakis Sandy, Utah, Vice President, Sales
Linda L. Watson Mississauga, Ontario, Vice President, Marketing
Norman H. Wotherspoon St. Catharines, Ontario, Treasurer
Head office and Canadian manufacturing facility: 1110 Hansler Road, P.O.
Box 1004, Welland, Ontario L3B 5S1 (905) 734-7476
United States manufacturing facility: 102 Corporate Blvd., Carolina Center
Business Park, West Columbia, South Carolina 29169 (803) 739-1151
Toronto Sales Office: Suite 414, 1 Eva Road, Toronto, Ontario M9C 4Z5
(416) 622-9740
Website: www.fantom.com E-mail: [email protected]
Auditors: KPMGLLP, Commerce Place, 21 King Street West, Suite 700,
Hamilton, Ontario L8N 3R1
Banker: The Bank of Nova Scotia, 177-185 St. Paul Street, St. Catharines,
Ontario L2R 6T3
General Counsel: Fasken Martineau DuMoulinLLP,Toronto Dominion Bank Tower,
Box 20, Suite 4200,Toronto-Dominion Centre, Toronto, Ontario M5K 1N6
Transfer Agent & Registrar: CIBC Mellon Trust Company, 320 Bay Street, P.O.
Box 1, Toronto, Ontario M5H 4A1
Toronto Stock Exchange: FTM NASDAQ: FTMTF
FANTOM(R), FURY(R), THUNDER(R), LIGHTNING(R), CYCLONE XT(R), and
CALYPSO(TM)are trademarks of Fantom Technologies Inc.
ANNUAL SHAREHOLDERS MEETING
October 26, 2000, TSE Auditorium, TSE Conference Centre & Stock Market
Place, The Exchange Tower, 130 King Street West, Toronto at 11:00 a.m.
32
<PAGE>
The information contained in this Annual Report including Management's
Discussion and Analysis includes certain statements relating to the Company
which are forward-looking statements under Section 21E of the United States
Securities Exchange Act of 1934. The words "designed", "expect", "anticipate",
"plan", "believe", "targeting", and similar expressions, as they relate to the
Company, its management or its products, are intended to identify forward-
looking statements. Such statements are based on assumptions made by, and
information available to, the Company. However, there are important factors that
could cause actual results to differ materially from those in such forward-
looking statements including, among others, the contingencies arising from the
uncertainties which are inherent in the development of new technology and the
unanticipated costs and time delays which often arise in the process of
developing new products based on innovative technology. The Company does not
intend, and assumes no obligation, to update the forward-looking statements to
reflect actual results, changes in assumptions or changes in other factors
affecting such statements.
<PAGE>
[GRAPHIC]
[LOGO OF FANTOM]
Head Office: 1110 Hansler Road, P.O. Box 1004, Welland, Ontario, Canada L3B 5S1
Tel: (905) 734-7476 Fax: (905) 734-9955 www.fantom.com Toronto Stock Exchange:
FTM NASDAQ: FTMTF
Printed in Canada Design: Taylor/Sprules Corporation
